Another attempt at refinancing falls flat
August 28, 2015
Our interest rate on the mortgage sucks at 4.8%. Because our HOA is engaged in some legal shenanigans and no lender will refinance a property with the exact scenario we’ve got, we weren’t able to refinance when rates bottomed out. My penny-pinching heart bleeds. Yet another reason to thank the HOA. I gave it another go when I found SoFi, a new lender that started out in student loans and recently branched out into mortgages.
I’d forgotten what our break-even number was, so I went searching for a new calculation at the same time. I’ve banked with Citibank for ages so had a look at their rates while I cleared out a checking account. They offered an overly simplistic way of calculating break-even: The typical formula for calculating your break-even point is to divide your refinance closing costs by the amount you’ll save each month with your lower mortgage payment.
For example, if your refinance costs total $5,000 and refinancing will save you $200 a month, it will take you 25 months to break even. If you don’t plan on staying in your house for that long, refinancing might not make most sense in the long run.
That’s shortsighted. Looking at the monthly “savings” misses the point which isn’t just to save a bit per month, it’s to save vast amounts over the life of the loan. And it ignores the fact that in some cases, you can choose to change the life span of the new loan to a shorter one (and probably should) which may cost as much or even more than you’re paying monthly.
That’s the case for us: I’m not going to refinance a 30-year mortgage for a new 30-year mortgage – that’s just going to add to the total interest we’d pay over the life of the loan. I’m looking for a 15 or 20 year fixed rate.
My application was quickly pre-approved but we only got as far as a rate estimate and then stalled. It was looking really good: 2.8% fixed for 15 years.
The break-even calculator cautioned me:
Change in monthly mortgage payment: Additional $29 per month
Um, really? We would happily pay an extra $29 per month to save THIS MUCH over the life of the loan. HAPPILY. 
The estimated closing costs, right before I provided documentation, stopped me short though: $10,000. Excuse me?? I shot off an email to them. After several go-arounds, that was revised downward drastically to “only” $3500 give or take, but underwriting said they wouldn’t (sigh) touch our loan for the same reason all the traditional banks wouldn’t.
Drat and blast.
I hadn’t quite started up mentally investing that extra $10,000 a year for the next 15 years that wouldn’t ultimately end up in the bank’s coffers by way of interest but I’d already gotten attached. Can you blame me?
Have you talked to the bank that holds your existing mortgage? Can they modify it at all?
We’ll try that next, but they’re not making decent enough offers to tempt us in their solicited offers.
That really sucks! Since it’s legal issues with the HOA I’m guessing this could be ongoing for some time? We, luckily, have a 2.75% 15 yr mortgage but I remember being stuck in a very high rate on my first home. I can’t even remember now but it was something like 8 – 9% and I couldn’t refinance because of credit issues! It was so frustrating!
It could be. It has been – we’re hoping that it’s nearing some kind of conclusion this year. You have the rate I’m looking for š
I would assume that whatever is ailing your HOA disqualifies you from conventional Fannie Mae loans and so you’re on portfolio financing? I ran into a similar issue with my condo at closing, but luckily it was a matter of the property temporarily not meeting fed standards so I’m looking to refi now. All that to say, that sucks and I’m sorry dumb bureaucracy issues are preventing your refi.
No, our existing loan was made before the HOA started their issues so it’s a conventional loan. Good luck with your refi!
Interesting set of figures…and what an annoying situation! Another of the many excellent reasons not to be herded into an HOA, if you can manage to avoid it.
When we tried to refinance the 30/15 loan on M’hijito’s house, we also ended up with an outrageous figure for closing costs — all told, it did add up to around ten grand.
So, here’s a question: if in theory you could afford the refinance charges, what would happen if instead of refinancing you just took that amount of money, prorated it over a number of months, and used it to prepay principal on the existing mortgage? It might be for the number of months remaining on the existing loan, or for a shorter period such as two or three years.
Would that shorten the length of the loan significantly, by knocking down principal faster? Or would it be more trouble than it’s worth?
I used to be so adamantly against HOAs without a lot of concrete reasons why – now the numbers back up my gut.
If we can’t manage the refi any time soon, I will be taking that cash and pay it toward principal in addition to our annual prepayment. I’d just do a lump sum prepayment, and I assume it’ll necessarily knock down principal and total interest on the loan.
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Yuck, how frustrating. That is an eye popping savings number though… keep pushing, even if you can get half of that it’s a huge win.
Yes, one way or another, I’m determined to take at least six figures off the total cost of the loan.
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